S&P Cut Can’t Stop Ooredoo Yields From Falling: Islamic Finance

Feb. 5 (Bloomberg) -- Islamic bond investors in Qatar’s
state-controlled phone company are disregarding this week’s
downgrade by Standard & Poor’s, pushing yields to the lowest
since the debt was sold as the company expands abroad.

The yield on the December 2018 sukuk of Ooredoo QSC fell 21
basis points this year to 2.96 percent today, according to data
compiled by Bloomberg. That compares with a two basis-point drop
to 4.9 percent yesterday in the average yield of Middle East
Shariah-compliant debt, JPMorgan Chase & Co. indexes show. The
risk profile for the company previously called Qatar Telecom is
“significant,” S&P said as it cut the rating one step Feb. 3.

Ooredoo’s push into emerging markets includes building a
$15 billion phone network in Myanmar, and expanding its presence
in North Africa. While the ratings company cited the increased
spending and economic volatility amid a global developing-nation
rout as reasons for the rating change, these factors won’t
“substantially change” the company’s credit profile, said Amol
Shitole at SJS Markets Ltd.

“We don’t see much of an impact on the sukuk or bond
prices of Ooredoo,” Shitole, a credit analyst at SJS Markets in
Bangalore, India, said by phone yesterday. “The company enjoys
strong implicit support from the government. They have excellent
access to capital markets.”

S&P didn’t respond to a phone call made yesterday seeking
comment.

Stimulus Cut

Ooredoo, Qatar’s biggest company by revenue, sold $1.25
billion of five-year sukuk in November. Bonds in developing
countries are tumbling as the U.S. reduces stimulus measures and
after manufacturing data from China cast doubt on the global
economic recovery. The average yield on emerging market notes
jumped 15 basis points this year to 5.45 percent today,
according to Bloomberg indexes.

“You might see the yields go up slightly, but long term we
don’t see much impact” from the downgrade, Bobby Sarkar, head
of research at Qatar National Bank Financial Services, said in
by phone yesterday.

Ooredoo’s non-Shariah compliant debt performed less well
than peers. The yield on the company’s $600 million notes due
June 2019 fell 31 basis points this year to 3.03 percent today,
compared with a 54 basis-point decline to 5.14 percent in the
yield of a May 2020 bond from Bahrain Telecommunications Co.,
according to data compiled by Bloomberg.

Indonesian Losses

Ooredoo reported a 58 percent drop in third-quarter net
income on foreign exchange losses, primarily from Indosat, its
Indonesian unit, it said in October. The company is “keeping an
open eye” for acquisition opportunities in the Middle East and
southeast Asia, Chief Executive Officer Nasser Marafih said that
month.

The telecommunications operator pulled out of the race to
buy Vivendi SA’s stake in Morocco’s Maroc Telecom in June. It
also won a license to operate in Myanmar, as did Norway’s
Telenor ASA.

Its first Islamic bond sale followed a $1 billion offering
of bonds in January last year. The telecommunications operator
has almost $1.84 billion of debt due this year, according to
data compiled by Bloomberg. Ooredoo didn’t respond to an e-mail
seeking comment yesterday.

“The company enjoys strong implicit support from the
government of Qatar,” Shitole said. “The deterioration in
credit metrics owing to currency weakness, particularly in
Indonesia, intense competition in its emerging market businesses
and costs associated with setting up its Myanmar operations
wouldn’t be significant enough to substantially change the
credit profile.”